Biofuels

Opportunities and risks for developing countries

BMZ Strategy Paper 14 | 2011e
BMZ STRATEGY PAPER 14/2011e 2
Contents
Foreword 3
1. Position of German development policy:
Biofuels as a contribution to rural development
4
2. Future German development-policy engagement 5
Policy dialogue and international framework-setting 5
Supporting partner countries in bilateral development cooperation 5
Cooperating with the private sector 6
Insisting on sustainability 6
3. Context 8
Biofuels: Clarication of terminology 8
The importance of biofuels 8
Inuence of biofuels on land availability and agricultural prices 9
4. Assessment 11
Opportunities and risks for developing countries 11
Utilising opportunities, minimising risks: Six basic principles 14
Realistic assessment of opportunities and risks is vital 16
Biofuel production as a short-term and medium-term strategy 16
Extending sustainability standards to the whole of biomass production 16
5. Bibliography 18
BMZ STRATEGY PAPER 14/2011e 3
Foreword
The rising worldwide demand for non-food agricul-
tural products and renewable energies presents a
major opportunity for rural regions in developing
countries. But good intentions are not enough to
guarantee good outcomes. Well-meant but super-
cial eco-romanticism in Germany can cause
hunger, forced displacement and even death in
developing countries.
Many of our partner countries still lack the political
settings that would be needed to make best use of
development opportunities and eliminate attendant
risks such as the clearance of rainforest or displace-
ment of communities. Furthermore, many produc-
ers in those countries have insufcient know-how
and means of production to reap any benet from
the rising demand in the agricultural markets.
We have reformulated our position on biofuels in
order to respond appropriately to the dynamics cur-
rently at work in this area. Past discourse on biofuels
has been very contentious and emotionally charged.
Let me therefore make one point quite clear: where
conict arises, an adequate food supply is always
our priority before seeking additional resources for
a sustainable energy supply. Yet at the same time,
I am convinced that any such goal conict can be
resolved productively; in fact, we need not let it arise
in the rst place.
Our core message is clear: we want to make reso-
lute use of the opportunities arising for developing
countries from the growing worldwide demand for
biofuels. At the same time, we want to eliminate pos-
sible risks and side-effects. To this end, transparent
standards on human rights and social and environ-
mental responsibility must become the touchstone
of all action taken. If this can be accomplished and
I am convinced that it can the cultivation of energy
crops becomes a development-policy gain for all
involved. In that event, biofuel production and food
security will not be at odds quite the opposite: with
the additional income created, and through general
stimulation of rural regions, we will then make a sig-
nicant contribution both to climate protection and
to the ght against hunger!
Poverty and hunger, population growth and migra-
tion, climate change, fragile states and unstable
markets call for policy responses. Rural regions are
very important for sustainable global development:
not only do they harbour great development poten-
tial, which has gone unpromoted for many years,
but these are also the regions in which the greatest
numbers of people live in poverty and hunger.
Rural development is a key sector and support focus
of German development policy. After more than a
decade of declining public and private investment
in agriculture and rural regions, this trend has for-
tunately been reversed due to resolute efforts by the
German Federal Government in conjunction with
others. In the period from 2010 to 2012, Germany has
pledged a total of 3 billion dollars for rural develop-
ment and food security.
Currently, however, there is also an upturn in pri-
vate investment in rural regions. This has our strong
support. In the past year, the total of all foreign
direct investment worldwide amounted to 1,122 bil-
lion dollars. More than half of this sum was invested
in developing countries and emerging economies
almost ve-fold the combined public spending of
all donor states on development cooperation in the
past year. This ratio demonstrates the thrust of the
dynamic on which we must now capitalise.
Hans-Jrgen Beerfeltz
State Secretary in the Federal Ministry for Economic
Cooperation and Development
BMZ STRATEGY PAPER 14/2011e 4
1. Position of German development policy:
Biofuels as a contribution to rural
development
Biofuels are viewed as pivotal to the attainment
of global climate targets and long-term energy
security. For that reason, the demand for energy
crops is increasing worldwide. Biofuel production
can contribute to higher incomes, better access to
energy, rehabilitation of degraded land, and hence
a general improvement in living conditions. So
far, these opportunities have not been sufciently
harnessed for the benet of developing countries,
rural regions and their inhabitants.
Since developing countries, by worldwide compari-
son, have the greatest potential to boost agricultur-
al production, they can play an important role in
the production of biofuels in future. It is therefore
right to make rural development a much stronger
focus of German development policy once again,
after years of neglect, and to support investment in
sustainable agriculture projects, taking advantage
of the opportunities of energy crop cultivation as
appropriate.
However, the production of energy crops also car-
ries environmental and social risks. For example,
it can result in over-exploitation of the natural
resources of water and soil, threats to biodiversity,
possible rises in food prices, the escalation of land
conicts, or a failure to involve the local population
in value creation.
The position of the German Federal Ministry for
Economic Cooperation and Development (BMZ) is
that the opportunities of energy crop production
must be grasped where they arise for developing
countries, and potential risks must be avoided. In
the view of BMZ, investment in the production of
energy crops promises to deliver sustained devel-
opment-policy benets if the following principles
are adhered to:
1. Primacy of the human rights to food and wa-
ter, by safeguarding local food security and
the supply of drinking water
2. Positive greenhouse gas balance, and con-
servation of biodiversity, soil fertility, water
resources and other ecosystem services
3. Compliance with minimum social standards,
particularly the ILO Core Labour Standards
4. Involvement of local communities in all deci-
sions concerning them, in accordance with
the principle of free, prior and informed con-
sent (FPIC)
5. Respect for existing land and water rights, in-
cluding informal and traditional rights
6. Participation of the local population in value
creation through creation of local employ-
ment and other avenues, general stimulation
of the rural economy and improved access to
energy
Within the responsible international institutions,
the BMZ strives to establish the general pre-em-
inence of these principles. Partner countries in
bilateral cooperation are supported in developing
framework conditions for sustainable biofuel pro-
duction in accordance with these principles. The
BMZ promotes the development of instruments
to ensure respect for human rights and social and
environmental standards. Through development
partnerships with the private sector it will initiate
projects on the ground for sustainable, develop-
ment-oriented biofuel production.
In July 2013 the BMZ will report on the implemen-
tation of its Biofuels position paper, and on the
success of its commitment to sustainable, develop-
ment-oriented production of energy crops in devel-
oping countries.
BMZ STRATEGY PAPER 14/2011e 5
2. Future German development-policy
engagement
In order to optimally exploit the opportunities pre-
sented by investments in sustainable agricultural
projects and to mitigate the risks of biofuel produc-
tion in developing countries, anticipatory steering
of policy is necessary. This is primarily the task of the
target countries for investment and their govern-
ments. German development policy can provide
support with this in the following areas:
POLICY DIALOGUE AND INTERNATIONAL
FRAMEWORK-SETTING
Within national and international policy processes,
German development policy will actively work to
ensure that the manufacture and use of biofuels
is carried out in a manner that is sustainable and
conducive to development. In order to ensure the
sustainability of investment in energy crops, the EU
Member States have already agreed, in the Renewa-
ble Energy Directive, on binding environmental sus-
tainability standards as a precondition for support.
On social aspects, the only mechanism provided so
far under the Directive is a reporting regime, but
this has not been made an eligibility condition for
the crediting of biofuels towards the blending quo-
ta. The BMZ will press for appropriate consideration
of social aspects in the further elaboration of the
Directive. On the international level, in the context
of the Global Bioenergy Partnership (GBEP), the BMZ
supports the development and application of indi-
cators for sustainable bioenergy policies. This part-
nership was initiated by the G8 in 2005 and brings
public, private and civil-society institutions together
to promote sustainable bioenergy. The BMZ will
advance this process by organising a conference
of international experts on the subject of relevant
capacity-building in developing countries.
SUPPORTING PARTNER COUNTRIES IN
BILATERAL DEVELOPMENT COOPERATION
As in the past, so too in future, German development
cooperation will continue to support its partner
countries in developing the framework conditions
for sustainable agricultural production, and for bio-
fuel production in particular. This includes support-
ing national and regional biomass strategies, e.g. by
analysing the given biomass potential, by providing
training on strategic environmental assessment,
and by setting up consultation processes between
decision-makers. Furthermore, biofuel producers
will be supported in increasing their productivity
sustainably, and thus reducing their relative pres-
sure on natural resources such as soil and water.
Measures will also be supported for the conserva-
tion and sustainable use of biodiversity, forests and
other ecosystems, and their integration into biofuel
projects. Partner countries will receive ongoing
support in the detailed elaboration of food security
strategies and the realisation of the human right to
food, not least in order to prevent any risk of compe-
tition between biofuel production and food produc-
tion. German development cooperation contributes
to safeguarding land-use rights through its advisory
work on national soil policies, land-use planning,
land registration and ecological rehabilitation. The
prime concern here is to counteract the risks of land
conicts and displacement of the local population.
BMZ STRATEGY PAPER 14/2011e 6
COOPERATING WITH THE PRIVATE
SECTOR
Systems of standards are an important instrument
for safeguarding human-rights, social and environ-
mental criteria in international value chains. They
enable consumers to choose to buy sustainably man-
ufactured products, and provide farmers and com-
panies with the means to structure their production
to satisfy that demand and ultimately to sell more
protably. However, the relevant requirements
must not disadvantage small farmers. Therefore
German development policy supports approaches
which take account of their needs. In the context
of promoting systems of standards for sustainable
agriculture, the BMZ works closely with the Interna-
tional Social and Environmental Accreditation and
Labelling Alliance (ISEAL), the umbrella organisa-
tion of the most important standards initiatives.
This also covers farmed feedstocks used for energy
generation.
The BMZ pursues the general goal of enabling small
farmers to access markets by means of inclusive
business models which integrate them into re-
gional and, if appropriate, global production and
value-creation chains. Among these models are, for
instance, contract farming (contractually agreed
cooperation between farmers and biofuel feedstock
purchasers), lease agreements which include prot-
sharing with the landowners, and management
contracts whereby a company manages the land
on behalf of the small farmers and the landowner.
These and similar forms of cooperation formalised
through development partnerships and strategic
alliances with the private sector will continue to be
applied to future measures in the eld of biofuels.
In these processes, some general principles to be ad-
hered to include an emphasis on long-term business
relationships, cooperation based on trust and fair-
ness between actors in the production chain, as well
as resource efciency, conservation of ecosystems
and respect for consumers interests.
INSISTING ON SUSTAINABILITY
Now and in future, the BMZ will only approve bilat-
eral development cooperation projects on biofuel
production and grant support to private investment
in this area if the development-policy benet of the
measure and its respect for human rights and envi-
ronmental and social standards are demonstrated
beyond doubt.
Through its contracting procedure, the BMZ ensures
that bilateral development cooperation projects
supported via the implementing organisations of
Technical and Financial Cooperation are in align-
ment with the Ministrys strategies. In particular,
the positions set out in the present paper are in line
with the binding strategy papers Rural development
and its contribution to food security and Human rights
in German development policy. BMZ strategy papers
serve as a guideline for the own-account business of
KfW Entwicklungsbank, DEG Deutsche Investitions-
und Entwicklungsgesellschaft mbH and GIZ GmbH
with its International Services division.
The World Bank and regional development banks
each apply their own standards to the assessment of
biofuel projects. Thus, a set of policies known as Safe-
guards are applied to all IBRD/IDA projects, while
Performance Standards are applied to all IFC/MIGA
projects. The BMZ takes an active role in the ongoing
development of these banks respective conditions
and standards, and urges them to make human
rights, environmental and social principles funda-
mental preconditions of their projects. Furthermore
the BMZ is involved in the development of country
and sector strategies by the development banks,
which in turn lay foundations for the orientation of
BMZ STRATEGY PAPER 14/2011e 7
concrete projects. If, for example, project proposals
are referred to the Board due to the political sensitiv-
ity of the situation or the high volume of the credit,
in future the BMZ will continue to assert its position
in specic terms when individual projects are under
discussion.
BMZ STRATEGY PAPER 14/2011e 8
3. Context
BIOFUELS: CLARIFICATION OF
TERMINOLOGY
Biofuels
1
1
Biofuels are fuels made from biomass. Their designation does not
imply that these fuels are green in the sense of environmentally
friendly per se.
are fuels in liquid or gaseous form which
are used in combustion engines, predominantly
in the transport sector, but also for power and heat
generation (e.g. in small-scale combined heat and
power units). They account for just a small share
of bioenergy, a term which encompasses all solid,
liquid and gaseous energy sources made from wood,
agricultural crop plants and organic residues and
wastes. The term rst generation biofuels refers
to liquid fuels made from plant-based oils and
starches, i.e. bioethanol on the basis of sugarcane,
grain and sugar beet, and biodiesel made from oil
palm, rape, soya and other oil crops. So far these
are the only widely used renewable energy sources,
since the technology is now tried and tested. Second
generation biofuels (biomass to liquid/BtL, cellulose
ethanol) are liquid and gaseous fuels from lignocel-
lulosic feedstocks (e.g. wood, grasses, woody wastes
and residues). These are not yet market-ready, and
their technical requirements rule them out for
widespread use in developing countries in the near
future. Third generation biofuels are extracted from
algae and other photosynthesising micro-organ-
isms; their development is still in its infancy.
THE IMPORTANCE OF BIOFUELS
Biofuel production has increased worldwide in re-
cent years. Currently biofuels account for approx.
3 % of global fuel consumption in the transport sec-
tor. Global biodiesel production almost trebled be-
tween 2006 and 2010, while bioethanol production
doubled (see Figure 1). The International Energy
Agency projects that the proportion of biofuels in
the transport sector may rise to 27 % by 2050, assum-
ing that the anticipated efciency gains for rst gen-
eration biofuels are realised and that second genera-
tion biofuels attain market-readiness (IEA 2010).
Many industrialised countries promote biofuels in
the framework of climate protection programmes
as a low-carbon alternative to fossil energy sources.
0
20
40
60
80
100
120
0
20
40
60
80
100
120 Billion
litres
Figure 1: Global biofuel production in the years 2000 to 2010
Source: IEA (2010)
Other biodiesel
OECD-Europe biodiesel
Other ethanol
USA ethanol
Brazil ethanol
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
BMZ STRATEGY PAPER 14/2011e 9
Million
ha
Source: RFA (2008)
0
200
400
600
800
1,000
1,200
1,400
Figure 2: Global land availability and requirements in the year 2020
Pessimistic Mid-range Optimistic
Biofuels
Food and Feed
Available suitable
land
Supplementary objectives are to improve energy
security in the context of increasingly scarce crude-
oil reserves, and promote domestic agriculture.
For instance, in its Renewable Energy Directive
(2009/28/EC), the EU set itself the objective of meet-
ing 20 % of its total energy demand and 10 % of its
transport-energy demand from renewable ener-
gies by 2020. Linked with that, the Directive on Fuel
Quality (2009/30/EC) provides for a 6 % reduction of
greenhouse gas emissions in the transport sector
during the same period. Three key objectives come
to the fore in the promotion of biofuels for develop-
ing countries and emerging economies: reducing
dependency on imported fossil energy sources and
improving the balance of trade; raising incomes by
means of new marketing channels for agriculture
as a contribution to sustainable rural development;
and reducing the widespread energy poverty, par-
ticularly in rural regions. Brazil is leading the way:
thanks to decades of state subsidy programmes, it
now meets half of its fuel demand in the transport
sector with bioethanol and ranks as one of the
worlds largest ethanol exporters. Since 2005, tar-
geted income opportunities for small agricultural
producers have been created in the framework of
the Brazilian biodiesel programme: biodiesel com-
panies receive tax concessions for making use of oil
produced by small farmers.
INFLUENCE OF BIOFUELS ON LAND
AVAILABILITY AND AGRICULTURAL PRICES
According to FAO data, at present 1 2 % of the world-
wide area of agricultural land is used for the produc-
tion of biofuels and the trend points upwards. At
the same time, the land requirement for food and
feedstuff production is also increasing. Currently
5 % of the global grain harvest is used to produce
biofuels. The largest share (40 50 %), however, is fed
to livestock. Projections of future demand and land
availability are not unequivocally clear
2
2
Forecasts of global land requirement and availability for energy crop
production, and the consequent scenarios for agricultural price trends,
vary greatly because the external variables (such as choice of energy
crop, energy and agricultural market development, technological
progress, impacts of climate change and framework policies) differ
very considerably. If co-products of biofuel production (especially
feedstuffs but also residues for subsequent use in energy production)
are taken into consideration, land requirements are generally reduced
by 10 25 %. If the availability of second generation biofuels is assumed,
the land requirement in the models normally drops by 30 40 %.
(see Figure 2).
BMZ STRATEGY PAPER 14/2011e 10
Depending on scenario, an additional 0.8 6.9 mil-
lion ha of land will be necessary to realise the EUs
10 % target for biofuels.
3
3
Source: http://www.ieep.eu/assets/750/Policy_brieng_
ILUC_21_01_2011_FINAL.pdf. The forecasts are based on different
reference periods and different underlying assumptions. See also
footnote 2.
The expansion of settlement
areas with attendant paving-over of land, the land
degradation caused by unsustainable arable farm-
ing and overgrazing, and the negative consequenc-
es of climate change will give rise to even greater
pressure on soil and other natural resources like
water, forests and biodiversity
4
4
Forest areas are currently the most signicant reserves of land,
and are therefore subject to high pressure for conversion. This is
jeopardising the attainment of global climate and environmental
targets (principally the reduction of greenhouse gas emissions and
conservation of biodiversity) and local environmental quality (prin-
cipally water availability, water quality, erosion protection and
climate adaptation capacity).
in the long-term.
Both the increase in conicts over use of land and
water resources and the rising demand for agricul-
tural inputs like seed and fertilisers cause agricul-
tural prices to escalate. The impacts of biofuel pro-
duction on the level and volatility of food prices has
been the subject of numerous studies.
It is now undisputed that the additional demand
for farmed feedstocks stimulated by targeted sup-
port policies in the USA and the EU, coupled with
other factors (harvest losses, nancial speculation,
climate change), have already contributed to raising
the prices of agricultural commodities. Forecasts
indicate that retention of these support policies for
biofuels will result in price rises of 3 % to 13 % for grain
and of 6 % to 30 % for oil seeds.
5
5
Source: http://publications.jrc.ec.europa.eu/repository/bitstream/
111111111/15287/1/jrc58484.pdf. The forecasts are based on different
reference periods and different underlying assumptions. See also
footnote 2.
BMZ STRATEGY PAPER 14/2011e 11
4. Assessment
OPPORTUNITIES AND RISKS FOR
DEVELOPING COUNTRIES
Biofuels are not good or bad per se. Their produc-
tion and use entail both opportunities and risks. The
economic, social, environmental and human-rights
impacts of biofuel production for the local popu-
lation in the region depend heavily on the given
regulatory framework, the detailed formulation of
contracts, and their implementation. If investment
is directed to sustainably-designed projects in rural
areas, the living situation of the local population can
be improved. If the detailed design is inappropriate,
however, there is a risk that the investment will fail
to deliver commensurate benets to the local popu-
lation.
Food security: The impacts of biofuel production
on food security must be considered in a differenti-
ated way. Generally, the broad-scale cultivation of
energy crops puts increased pressure on natural
resources by heightening the demand for land and
water, and for agricultural inputs; this in turn affects
global markets and plays a part in inating agri-
cultural product prices. For agricultural producers
who produce more than they consume themselves
(known as net producers), higher (stable) agricultur-
al prices are the basis for any improvement to their
living situation since they earn a higher income for
their products, which they can then spend on bet-
ter food, their childrens schooling, or investment
in their farms. For poor mainly urban but in some
cases landless rural population groups, who are
dependent on buying affordable food (known as net
consumers), food-price rises only exacerbate the is-
sue of hunger. Social compensatory measures are es-
sential here. In the short term, the decline in supply
can be compensated by trade, and in the medium-
term by increased productivity.
The widespread opinion that it is better per se to cul-
tivate non-food than food crops for biofuel produc-
tion is too short-sighted. In fact, the cultivation of
food plants which can be used as energy feedstocks,
such as maize, cassava, sugarcane or palm oil, cre-
ates the option to rely on them for subsistence in
the event of food shortages. In other words, they
can act as a buffer against negative trends affecting
the food supply.
6
6
In the case of multipurpose crops, market mechanisms or state in-
terventions can steer the choice of utilisation relatively promptly:
for instance, Brazilian bioethanol production has declined sharply
due to the current high sugar prices.
To reduce the risk of competition
between biofuel production and food production,
energy crops can be produced in coordinated rota-
tion cycles or in mixed cropping systems with food
crops. Although the possibilities and limitations
have not been fully researched, there are some en-
ergy crops that can be cultivated on marginal land
that is unsuited to food crops. For instance, cultiva-
tion of jatropha is possible on eroded land and can
even help to improve soil quality in the best cases.
Nevertheless, the yields are very low. Therefore such
a plantation is only worthwhile if, in addition to the
oil yield, other services such as improving soil fertil-
ity or reducing erosion are taken into account.
Employment and income situation: Investments
in biofuel production can create additional employ-
ment and income opportunities. They are most ef-
fective in promoting development when they are
not aimed solely at large-scale plantations but pro-
mote the inclusion of (small-scale) farm production.
Fair business models are a prerequisite for pro-poor
growth: in this way, strategies such as contract farm-
ing, along with recognised systems of certication
and standards, can open up access to advice, inno-
vations, appropriate technologies, infrastructure,
services, inputs and sales markets for the farmers in-
volved. Access to these benets must be guaranteed
for marginalised population groups in particular.
This not only helps to ensure the production and
sale of energy crops at appropriate prices but also
makes it possible to raise productivity throughout
BMZ STRATEGY PAPER 14/2011e 12
the agricultural sector, which can also work to
the advantage of food production. By promoting
systems of certication and standards (such as the
Roundtable for Sustainable Palm Oil RSPO, Round-
table for Responsible Soy RTRS and the Roundtable
for Sustainable Biofuels RSB), new market segments
can be opened up, leading to the creation of local
jobs. Local producers can achieve better prices by
entering into partnerships with investors to raise
their product quality so that it will sell at higher
prices. Beyond this, the application of social and
environmental production criteria can lead to an
improvement in working conditions.
However, if international investors exclusively em-
ploy their own workforces or make use of highly
mechanised production techniques without train-
ing local workers in their use, the local population
may be deprived of employment opportunities.
Wages and working conditions must comply with
national legislation or, where appropriate, with the
ILO Core Labour Standards, the OECD Guidelines for
Multinational Enterprises, the UN Global Compact
or other voluntary standards. If the local population
is de jure or de facto dispossessed or deprived of
the basis of its livelihood without compensation,
these people descend into absolute poverty.
Impacts on climate and the environment: Essen-
tially due to the prevailing conditions in which they
are cultivated, farmed feedstocks from the tropics
and subtropics (e.g. ethanol from sugar cane and
biodiesel from palm oil) have better net greenhouse
gas (GHG) and energy balances than those from non-
tropical regions. In order to really utilise this poten-
tial, however, and to ensure that their fundamental
advantage is not counteracted by inappropriate
forms and methods of production, clear conditions
must be imposed on agricultural production prac-
tices.
Biofuel production based on wastes and residues
has the best GHG and environmental balance. All
other biofuel production paths inevitably have land-
use impacts. Expansion in the land area devoted to
biofuel production always means a direct change
in land use. In addition, it can entail further indi-
rect changes in land use, if the previous use (e.g.
food or feedstuff production) is crowded out and
shifted onto other land. A complete evaluation of
the impact of any energy crop production project on
climate and the environment must therefore take
account of the effects of direct land-use change and
possible further effects of indirect land-use change.
7

7
Whereas the effects of direct land-use changes on the given pro-
ductive land can be veried relatively clearly, the complex interac-
tion of land availability, yield increases, changes in demand etc.
make it difcult to ascribe indirect land-use changes to particular
geographical localities and impossible to gather complete data.
Positive effects on climate and the environment can
most reliably be achieved by rehabilitating areas of
degraded land for biofuel production. Crop cover
can stem the erosion of these soils and improve their
capacity to store water and carbon. Moreover, the
rehabilitated areas can be used as eco-corridors to
link up existing ecosystems, which supports the con-
servation of biodiversity.
It will also be critical in future to increase biomass
production yields by making more efcient use of
agricultural land. The production of biofuels needs
to expand on the strength of higher yields rather
than additional land-take, so that no overall expan-
sion in agricultural land area occurs. This will mini-
mise the risks of adverse climate and environmental
impacts like the clearance of virgin forests to gain
land for biofuel production or the displacement
of previous farming uses into traditional pasture
lands or into forested areas. Harmful impacts on the
climate occur particularly when ecosystems with a
high capacity to sequester carbon (e.g. forests, bogs
and mires) are converted into arable land. This kind
BMZ STRATEGY PAPER 14/2011e 13
of conversion releases CO
2
in such large amounts
that it outweighs by many times the total of carbon
emissions saved by not burning fossil fuels.
Energy supply: Locally produced and used biofuels
can reduce the widespread energy poverty in rural
regions. For developing countries, they open up an
alternative to importing fossil energy sources and
thus the possibility of saving foreign currency. A pre-
requisite is the existence of a local or national bio-
fuel market and appropriate energy infrastructure
and services. The subsidisation of fossil fuels is a bar-
rier to the establishment of national biofuel markets
in many developing countries. At the same time the
end users, e.g. possible users of a village-run vegeta-
ble oil generator, are only willing or able to pay for
energy if it is supplied reliably and enables higher
value creation. Their willingness to pay, in turn, is
pivotal in determining whether it is worthwhile for
local producers to supply adequate volumes of bio-
mass. From the viewpoint of a developing country,
it can certainly make sense to produce biofuels for
established (high-paying) export markets at rst,
and subsequently to make use of the income and
technology transfer to develop the domestic biofuel
market. Establishing local biofuel value-creation
chains calls for a comprehensive sustainability strat-
egy and coherent public promotion across sector
boundaries. In contrast, by making use of wastes
and residues (e.g. bagasse from sugarcane, oil palm
wastes) inputs to the local electricity supply can be
realised comparatively easily.
Land conicts, rural exodus, uncompensated
resettlement or displacement: The cultivation
of energy crops can lead to the escalation of land
conicts, intensied rural-urban migration, uncom-
pensated resettlement and displacement of commu-
nities. In many places it can be observed that large
areas of land are being bought or leased for biofuel
production. If land ownership and land-use rights in
the affected territories (e.g. rights to grazing, rights
of way, water rights and rights to gather products
such as rewood and medicinal plants) have no ba-
sis in formal law, are only inadequately documented
or are not sufciently enforced by the state, the local
population is often exposed to the above risks with-
out any protection. These formal bases are crucial
for securing peoples involvement in negotiations
at an early stage and, if applicable, stipulating com-
pensation. The inhabitants of areas with traditional
land ownership and land-use rights, particularly vul-
nerable groups like indigenous peoples, migrants
and widows, are more severely affected, particularly
because land is usually the only resource from which
they can derive their livelihood. Where there are
few fall-back areas and population density is high,
the risk is especially great that they will be forced
onto degraded land. Particularly in countries which
suffer corruption and a lack of legal certainty, large-
scale land purchases and leases can lead to human-
rights violations such as forced resettlements, or
exacerbate these in countries already affected by
conict. In such situations such land transactions
can pose a threat to stability and peace in a region or
country.
Economic and structural-policy impacts: Posi-
tive impacts on the economy arise through higher
economic output from rural regions and an overall
uplift in tax revenues. Above all, when this tax is ap-
plied to measures which improve production, em-
ployment and income, and is spent on establishing
and extending basic social services in rural regions,
comprehensive rural development can be set in
motion. In this way the promotion of biofuels is a
structural and regional policy intervention in favour
of the rural areas which have been neglected for
decades. Whether these effects are achieved via the
export of biofuels and/or the establishment of local
biofuel markets depends on the given conditions in
the country (e.g. access to and costs of fossil energy
sources, infrastructure).
BMZ STRATEGY PAPER 14/2011e 14
However, ambitious promotion targets for biofuel
expansion in conjunction with overall rising de-
mand for farmed feedstocks, harvest losses due to
climate change and nancial speculation may con-
tribute not just to price increases but also to higher
price volatility in agricultural markets. These are
detrimental to both producers and consumers of
agricultural goods, and therefore weaken the econ-
omy as a whole. A further risk is that in the context
of biofuel investment incentive programmes, gov-
ernments make very high nancial concessions to
investors (tax relief, trading preferences, unduly low
water costs) and thereby counteract the expected
positive impacts in the form of jobs, tax receipts and
technology transfer. Moreover, any non-sustainable
use of land for biofuel expansion causes the loss of
important ecosystem services (e.g. water catchment,
biodiversity conservation); these need to be given
greater weight in macro-economic cost-benet
analysis.
8
8
The BMZ examines the economic assessment of non-sustainable
use of agricultural land in the study The Economics of Land Deg-
radation (publication in 2012). The potential for capturing the
value of ecosystem services is highlighted by, for example, the
international initiative The Economics of Ecosystems and Biodi-
versity (TEEB): http://www.teebweb.org/.
UTILISING OPPORTUNITIES, MINIMISING
RISKS: SIX BASIC PRINCIPLES
German development policy is convinced that the
following basic principles must be adhered to in bio-
fuel production as a precondition for realising the
development potential of investment in sustainable
agricultural projects and for managing the risks suc-
cessfully:
1. Primacy of the human rights to food and
water:
The food security of the local and national popula-
tion, as well as their supply of drinking water and
water for agricultural production have absolute pri-
ority. The availability of and access to food and water
must be guaranteed for all population groups. This
merits particular attention when agricultural land
is planted exclusively with crops for use in energy
production or when the water balance in the region
is inuenced on a broad scale by large volumes of
extraction (from watercourses and aquifers).
2. Positive GHG balance, and conservation of bio-
diversity, soil fertility, water resources and other
ecosystem services:
In order to attain a positive greenhouse gas and en-
vironmental balance, preference should be given to
methods of production and use which lay claim to
as little additional land area as possible and make
sparing use of water resources. By raising agricul-
tural productivity and selecting suitable rotation
and multi-cropping systems, further gains in land
productivity can be achieved. Soil fertility must be
maintained with sustainable and soil-conserving
techniques and appropriate fertilisation. Further-
more the discharge of harmful substances into soil
and water must be reduced as far as possible. Adher-
ence to sustainability standards and principles and
performance of strategic environmental impact
assessments are important instruments for ensuring
the sustainability of production.
3. Compliance with minimum social standards,
particularly the ILO Core Labour Standards:
Social standards such as the prohibition of child
labour and forced labour, equal pay, freedom of as-
sociation, minimum age and prohibition of all types
of discrimination must be upheld in biofuel produc-
tion. Therefore the ILO Core Labour Standards, the
OECD Guidelines for Multinational Enterprises, the
UN Global Compact and other voluntary standards
must be incorporated into contracts, and steps taken
to ensure that they are applied in practice.
BMZ STRATEGY PAPER 14/2011e 15
4. Involvement of local communities in all deci-
sions concerning them, in accordance with the
principle of free, prior and informed consent
(FPIC):
The local population should be involved as early
and as comprehensively as possible, i.e. at the stage
of preparing soil policies and land-use plans, but
especially in the planning of specic agricultural
projects. Contract negotiations are to be conducted
transparently and with systematic involvement of
the relevant stakeholders, including civil society
and, most particularly, local land users. Above all,
population groups who are frequently disadvan-
taged in decision-making processes (women, for
instance, who are often in relationships of depend-
ency where access to land and water are concerned,
and do not therefore have the same negotiating
position as men), should have a say in the negotia-
tions. The decision as to whether and under what
conditions land is sold or leased to an investor can
only be taken with free, prior and informed consent
from the people affected. In order to safeguard the
political participation of the people concerned, im-
portant considerations are the establishment of ad-
ministrations close to the communities they serve,
the efcient provision of municipal services and in-
frastructure, and the promotion of capacity develop-
ment measures on the subject of accountability.
5. Respect for existing land and water rights,
including informal and traditional rights:
Existing land rights must be acknowledged and
harmonised; that is the foundation for the design
of binding regulations for land sales and leases in
connection with biofuel production. The challenge
is becoming especially clear in Africa: whereas de
jure the land claimed for a concession is often state
land, de facto it will have been in use by local arable
and livestock farmers for generations under custom-
ary law. That means that informal and traditional
land ownership and land-use rights are also to be
respected, with guarantees to the population incor-
porated into contracts. Since women are frequently
disadvantaged both in modern and in traditional
land law, particularly with regard to questions of
ownership, it is crucial that equal access to land is
guaranteed, irrespective of the legal form. To this
end, the registration of communal and individual
land rights is a central element which is, in turn, fun-
damental to the formulation and implementation of
land policies and land-use plans.
6. Participation of the local population in value
creation through creation of local employment
and other avenues, general stimulation of the
rural economy and improved access to energy:
In order to ensure that the local population ben-
ets from biofuel production, it is essential that the
detailed formulation of contracts should be devel-
opment-oriented, pro-poor and compatible with
human rights. Since jobs represent an important
mechanism for participation of the local population,
the contracts should make clear stipulations about
a minimum number of jobs and on the prioritisa-
tion of local over foreign workers. In addition, the
involvement of the local economy should be secured
by means of links with local suppliers and local
processors. Participation of the local population in
the returns from investment can be achieved, for
example, by means of equity participation in which
a farmers union or another local organisation
exchanges its land-use rights for shares in the com-
pany, or by collective prot-sharing arrangements
with the local population. Both job-allocation and
prot-sharing mechanisms should be designed with
gender equity in mind.
BMZ STRATEGY PAPER 14/2011e 16
REALISTIC ASSESSMENT OF
OPPORTUNITIES AND RISKS IS VITAL
To make a realistic appraisal of the opportunities
and risks, analysis of the economic and structural-
policy benets should be undertaken beforehand,
particularly before the realisation of a large-scale
energy crop plantation for biofuel production. An
objective assessment of respect for human rights
and socio-economic and environmental sustainabil-
ity should also be carried out.
9
9
Effective instruments for this purpose are Environmental and
Social Impact Assessment, Human Rights Impact Assessment, and
Poverty and Social Impact Assessment. The due diligence obliga-
tions associated with corporate human rights responsibilities are
set out in the UN Framework for Business and Human Rights Pro-
tect, Respect, Remedy, which should be consulted as an important
reference.
Evidence of sustain-
ability should be demonstrated and communicated
continuously by means of certication systems.
Results of assessments and evaluations should be ac-
cessible not only to investors and policy-makers but
also to the affected population and the general pub-
lic in an appropriate form. The role of civil society is
an important one, both with regard to information
about the opportunities and risks of biofuel produc-
tion, and in relation to monitoring contract nego-
tiations, contract implementation and the impacts
of investment. Representatives of civil society, par-
ticularly the affected people themselves, should be
actively involved in the contract negotiations and,
where necessary, actively supported in exercising
their monitoring function. Attention must be paid
to equitable representation of the affected popula-
tion groups, and of both genders in particular. The
assessment of a large-scale energy crop plantation
for biofuel extraction must be informed by existing
international law. This includes respect for human
rights, ILO conventions, obligations under invest-
ment agreements, and international trade agree-
ments.
BIOFUEL PRODUCTION AS A SHORT-TERM
AND MEDIUM-TERM STRATEGY
In the short to medium term, the use of farmed
feedstocks for energy production is an additional
marketing opportunity and source of potential
income for agriculture. Initial estimates indicate,
however, that from the year 2020 the agricultural
land available for bioenergy and other non-food ag-
ricultural products could become scarce due to the
combined effects of population growth, if it reaches
the projected levels, along with changed consump-
tion patterns and climate-related impacts on yields.
The BMZ supports its partner countries in adapting
agricultural production to climate change, raising
agricultural productivity and minimising post-har-
vest losses. Nevertheless land-take is going to rise.
Therefore the BMZ views rst generation biofuels as
a transitional technology for use as a substitute for
fossil energy sources, before more efcient trans-
port technologies like electric vehicles or the use of
second and third generation biofuels attain market-
readiness. Where possible, the use of co-products
should be promoted (e.g. use of process residues
from palm oil and sugar cane production for gen-
eration of the local energy supply).
EXTENDING SUSTAINABILITY STANDARDS
TO THE WHOLE OF BIOMASS PRODUCTION
The risks mentioned are not specic to biofuels but
concern the whole of food and feedstuff production
as well as biomass production for feedstock uses in
industry (i.e. the materials, pulp, chemical, textiles,
pharmaceutical and cosmetics industries and oth-
ers). However, biofuels differ from other agricultural
products in that they are the object of targeted policy
incentives. This special status creates the immediate
necessity to institute sustainable structures in this
market rst of all. Furthermore, the debate must ur-
gently be broadened to cover the whole of biomass
BMZ STRATEGY PAPER 14/2011e 17
production and other agricultural products.
10
10
The BMZ has commissioned a study on the environmental and
socio-economic implications of exporting non-food agricultural
products from developing countries for use as feedstocks in Ger-
many and the rest of Europe: the study Nachwachsende Rohstoffe
fr die stofiche Nutzung Auswirkungen fr Entwicklungs- und
Schwellenlnder (Non-food agricultural products for industrial
feedstocks implications for developing countries and emerging
economies) will be published soon online.
Dis-
cussion about biofuels is already observably advanc-
ing the general sustainability debate in agriculture.
The most effective option for preventing adverse im-
pacts from the production of farmed feedstocks is to
implement appropriate framework policies and pro-
duction standards geared towards the sustainability
of the entire agriculture and forestry sector.
BMZ STRATEGY PAPER 14/2011e 18
5. Bibliography
EU (2009)
Directive 2009/28/EC of the European Parliament
and of the Council of 23 April 2009 on the promo-
tion of the use of energy from renewable sources and
amending and subsequently repealing Directives
2001/77/EC and 2003/30/EC.
EU (2009)
Directive 2009/30/EC of the European Parliament
and of the Council of 23 April 2009 amending Direc-
tive 98/70/EC as regards the specication of petrol,
diesel and gas-oil and introducing a mechanism to
monitor and reduce greenhouse gas emissions and
amending Council Directive 1999/32/EC as regards
the specication of fuel used by inland waterway
vessels and repealing Directive 93/12/EEC.
European Commission, Joint Research Centre
(2010)
Impacts of the EU Biofuel Target on Agricultural
Markets and Land Use. A Comparative Modelling
Assessment
IEA (2010)
Technology Roadmap Biofuels for Transport.
International Energy Agency (IEA), Paris.
Kretschmer, Bettina (2011)
The Land-use implications of EU bioenergy poli-
cy going beyond ILUC, IEEP:
http://www.ieep.eu/assets/750/Policy_brieng_
ILUC_21_01_2011_FINAL.pdf
Kampman, Bettina; Femke Brouwer and Benno
Schepers (2008)
Agricultural Land availability and demand in
2020 A global analysis of drivers and demand for
feedstock, and agricultural land availability, Delft,
CE.
RFA (2008)
The Gallagher Review of the indirect effects of
biofuels productions. Renewable Fuels Agency
(RFA).
WB (2007)
World Development Report 2008 Agriculture
for Development.
Zeddies, Jrgen (2008)
Globale Nutzungskonikte und Auswirkungen
auf die Agrarmrkte. KTBL-Schrift 468: kolo-
gische und konomische Bewertung nachwach-
sender Energietrger: pp. 12 28.
BMZ STRATEGY PAPER 14/2011e 19
Published by the
Federal Ministry for Economic Cooperation and Development (BMZ),
Division for development education and information
Edited by the
BMZ Division for rural development; global food security
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